Plaintiffs, investors in an oil drilling venture, alleged
in this class action that the defendant, a major accounting firm, is liable
to them for misstatements in several opinion letters which advised them
as to the supposed tax consequences of those investments....

We certified a class consisting of all persons who purchased
these securities after July 22, 1971, 70 F.R.D. 544 (E.D. Pa. 1976). There
ensued an apparent novelty in our jurisprudence: a jury trial of issues
common to the class under the Rule 10b-5, §20(a) and pendent claims. These
issues included foreseeability of damages, the exercise of reasonable
care, whether there were misrepresentations and omissions and, if so,
their materiality and scienter, and whether the defendant controlled an
employee for §20(a) purposes and adequately supervised him....

Plaintiffs are persons who purchased limited partnership
interests in oil wells to be drilled in Kansas and Ohio, of which Westland
Minerals Corporation (WMC) was general partner and promoter. As a result
of criminal fraud by WMC, many of these wells were never drilled and much
of the invested money was diverted to WMC's own use. Economic Concepts,
Inc. (ECI), the selling agent for these limited partnerships, and WMC
sought to engage in April 1971 the services of defendant in rendering
opinions as to the federal income tax consequences of these limited partnerships.
In July the defendant [agreed to draft the opinion letters. An] opinion
letter signed by a Coopers & Lybrand partner in its name [stated]
that "based solely on the facts contained [in the Limited Partnership
Agreement] and without verification by us" a limited partner who
contributed $65,000 in cash could deduct approximately $128,000 on his
1971 tax return.... The letter was written specifically for the use of
one Muhammed Ali, a potential WMC investor, with regard to reducing the
amount of taxes that would be withheld from a fight purse....

The jury found that the ... letter contained both material
misrepresentations and material omissions, and that Higgins [a tax supervisor
employed by Coopers & Lybrand who worked "directly under the
supervision of four partners of defendant"] acted either recklessly
or with intent to defraud in preparing the letters. Much of the evidence
concerning those misrepresentations and omissions and their recklessness
came from plaintiffs' expert witness, Professor Bernard Wolfman of the
Harvard Law School, a specialist in federal income taxation. Most of his
testimony was not rebutted by the defendant. Professor Wolfman explained
the principles behind this tax shelter: a taxpayer who in 1971 contributed
$25,000 to a partnership involved in a bona fide oil drilling venture,
which then obtained for each $25,000 contribution an additional $25,000
bona fide bank loan that was fully secured by partnership property (the
as yet undrilled wells) and then expended all of that $50,000 for drilling,
could under the law applicable in 1971 deduct the full $50,000 from his
taxable income. The effect would be to accelerate the tax deduction available
to the investor in 1971. Professor Wolfman's expert testimony in concert
with other evidence provided the basis for the jury's findings that the
... letter misrepresented or omitted to state material facts in at least
three ways....

Professor Wolfman testified that writing such a letter
was reckless on its face in that it omitted to state that the non-recourse
loan which the letter assumed lending institutions would make to WMC,
the value of which loan would be deductible by the taxpayer according
to the opinion letter, would have to be secured by collateral (i.e., the
oil wells) whose value was equal to or greater than the amount of that
loan. Non-recourse loans of the type contemplated by the opinion letter
(i.e., with no personal liability to the limited partners) are very rarely
entered into by banks for oil drilling ventures, according to Professor
Wolfman, because it is hard to secure them fully by undrilled wells, whose
value is not known. Unless the value of the property used by the partnership
to secure the loan were equal to the amount of the loan, Professor Wolfman
explained, the amount of the loan would not be deductible to the limited
partner under §752(c) of the Internal Revenue Code. To assume this unlikely
fact that the loans would be thus secured without stating the assumption
was itself reckless, he said.

(1) Should Professor Wolfman have been allowed to testify as he did?

(2) Suppose the case were criminal. Should the prosecutor be allowed
to call Professor Wolfman to explain to the jury why what the defendant
did was criminal? (That sort of "explanation" is called "teaching"
in Professor Wolfman's regular line of work.)

(3) Would it make more sense for Professor Wolfman to be called as a
court-appointed expert under Rule 706?

(4) If Wolfman is allowed to testify, what sort of evidence should the
defendant be allowed to introduce to counter it? Who resolves any conflicts
between Wolfman's testimony and the rebuttal evidence?

(5) Would it be better for judges simply to instruct jurors on the law
after considering the arguments of counsel on proposed instructions?